BUYOUTS: Giant Squeaks Through Back Door, Focus Draws Closer

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Bottom line: Focus Media and Giant Interactive will become the first 2 companies to re-list in China after privatizing from New York, but will still struggle for attention and could end up with valuations roughly equal to what they had previously.

Giant completes backdoor listing, Focus close

China’s first 2 companies to attempt re-listings at home after privatizing from New York are both in the headlines today, led by word that Giant Interactive has completed its backdoor listing using a company called New Century Cruises (Shenzhen: 002558). At the same time, separate reports are saying that outdoor advertising specialist Focus Media is on the cusp of completing its own backdoor listing after receiving official approval from the securities regulator to execute its plan using another Shenzhen-listed company called Hedy Holding (Shenzhen: 002027).

The completion of both deals right around the same time seems like more than coincidence, and probably coincides with the regulator’s announcement last week that it will resume new IPOs after a 5 month hiatus due to volatility on China’s stock markets. It’s also quite revealing that both Giant and Focus are big Shanghai-based companies, meaning they probably have more financial sophistication and other resources than most other companies seeking to make a similar homeward migration.

When Focus and Giant finally complete their re-listings at home, both could still face difficulty getting noticed on China’s crowded stock markets where investors pay little attention to company fundamentals. But that fact could also work to Giant’s advantage, since its financials weren’t all that attractive when it de-listed due to stiff competition in its core online game business.

Let’s begin with Giant, which media are saying has officially become the first Chinese company to make the homeward migration by injecting its assets into New Century Cruises in exchange for new shares. (Chinese article) New Century’s stock has been climbing sharply in recent days and the company’s value is now about 3 billion yuan, or nearly $500 million. We’ll have to wait to see where the value finally settles, and whether Giant can get more than the $3 billion it was worth when it de-listed from New York.

All About Values

Giant’s chief Shi Yuzhu had previously boasted that his company could be worth up to $16 billion when he first began looking for a backdoor listing vehicle. But then documents Giant filed in the backdoor listing process showed the value could be much lower, perhaps as little as $2 billion. Many of the roughly 3 dozen companies that launched similar privatization drives earlier this year will be watching closely to see where the final valuation settles, to see whether the homeward migration really offers them better value.

Next there’s Focus Media, which originally looked set to become the first company to successfully re-list in China, only to see the shell company it chose get probed for illegal activity by the securities regulator. That forced Focus to find a new backdoor vehicle, Hedy Holding, and now media are saying the securities regulator has officially signed off on the deal. (Chinese article)

Hedy Holding’s current market value is nearly $2 billion, or quite a bit higher than New Century Cruises. Earlier details announced by Focus had indicated it believed it could get a market value of around $7 billion after the backdoor listing, which would be nearly double the $4 billion it was worth when it left New York 2 years ago. Again, other privatization candidates will be watching closely to see where the final valuation settles.

At the end of the day, it’s not at all clear whether Focus and Giant will be able to surpass their New York valuations by returning to China. And even if they do, the differences may not be huge, and both companies will face a whole new set of challenges posed by China’s unruly domestic stock markets. If that’s the case, many of the companies trying to de-list from New York might still pursue their plans, but could ultimately choose other options like selling themselves to larger rivals rather than re-listing at home.

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